Are you facing financial difficulties that are making it difficult to meet your mortgage obligation? The last thing you thought when you bought your house was that you wouldn’t be able to pay your mortgage and would end up in foreclosure. Unfortunately, life sometimes takes unplanned and unexpected turns.
As a homeowner, it is up to you to take all the needed actions to save you from foreclosure. Obviously, the simplest way is to avoid circumstances that cause it such as excessive debt, adjustable-rate mortgages, insufficient emergency resources, lack of insurance, or buying a home you that’s beyond your means, to name a few.
But sometimes things happen that are out of your control, like losing a job or incurring large medical expenses or getting divorced, and can also lead to foreclosure. In a previous blog we discussed how to avoid foreclosure. But what are you going to do if your financial difficulties are so severe that you simply can’t possibly avoid foreclosure?
In this blog we’ll look at look at the period leading up to foreclosure, the consequences of foreclosure, and how selling your house to an investor can save you from foreclosure.
Have you made some late payments and the bank is sending you notices and charging you late fees? Have you already missed some payments and gotten a notice from the bank that they are going to foreclose? Then you are most likely in pre-foreclosure.
Pre-foreclosure is the time period that begins when a borrower defaults on a mortgage and ends when the lender either forecloses on your property or agrees to an arrangement that allows the homeowner to stay in their home.
At this point there are some options to stop foreclosure, including refinancing your mortgage or asking the bank for a loan modification, payment plan, or other deal. Filing for bankruptcy at this point is an option that some owners choose for mortgage forbearance. Unfortunately, the reality is that filing for bankruptcy is only a temporary reprieve. It doesn’t take away your financial responsibility, and thus it only works when your financial hardships are for a short while.
In many cases it is possible to avoid foreclosure by selling your house in advance of the foreclosure process before the lender sells your house and you get nothing. Then you can salvage your credit through a sale and settle what you owe, including taxes, missed deposits, and penalties attached before an auctioneer sells your house.
Your options to sell will depend on a number of factors including how far behind you are on payments, if the foreclosure process has begun, and how much time you have left, among others. We’ll get into the details of selling prior to foreclosure a little further down.
First, let’s take a look at the consequences of foreclosure.
The Consequences of Foreclosure
Losing your home is not the only consequence of a foreclosure. Most foreclosures that go under the hammer at an auction sell for much less than the home’s value. For this reason, even when the lender forecloses and sells the property, they can come after you if the value of the sale is not equal to your debt obligation.
There are also tax and credit consequences that can haunt you for a very long time. For example, the IRS considers a foreclosure to be debt forgiveness. This means if you still owed thousands of dollars on your house when it was foreclosed on, the IRS may consider that money “income” and tax you accordingly.
While it may make your mortgage payments disappear, a foreclosure’s damage to your credit is far-reaching. Not only do you lose your home, but a foreclosure stays on your credit report for seven years, thereby rendering financial recovery nearly impossible. As such, you will likely face challenges to get financing for a new home or access quality credit for other projects in the near future.
In addition to massively lowering your credit score, this can make it difficult to secure housing in the future, even rental housing. Getting a new home loan isn’t impossible after foreclosure, but you will need to wait a significant number of years while rebuilding your credit.
And, if you wait too long to leave your home, you might even have to deal with the humiliation of seeing the local sheriff haul all of your possessions out onto the lawn in front of all of your neighbors.
You Can Avoid Foreclosure By Selling Your House
For many struggling homeowners behind on their mortgage payments, one of the best ways to mitigate some of these financial and personal consequences is to sell your house fast to a home investor before the foreclosure is finalized. This helps pay off the mortgage and save your credit. Though taking care of your mortgage this way still means giving up the home, it helps you avoid other consequences, and you may even walk away with money to start over again.
Options When Selling Your Home
When selling your home to avoid foreclosure, you’ll have two options: a Short Sale or selling to a home investor for cash. A Short Sale means selling your house for less than what you owe on your mortgage. Usually this is the last resort of people who are upside down in their homes; they may sell the home at market rate yet still end up with a balance that will need to be paid.
Your lender must approve the Short Sale, and this is where things can get tricky. Your lender can take up to 120 days to make the decision. Unless the lender decides to pause the foreclosure proceedings, you may not get the approval to move ahead with the Short Sale before your deadline. If you’re thinking you might want to stave off foreclosure by short selling your house, start talking to your lender the moment you’re in trouble.
While a Short Sale approval typically takes time, which you may not have if foreclosure is pending, banks do move more quickly for a cash sale. As home investors, Black Girls Buy Houses can present lenders with attractive terms that help accelerate the approval and save you from foreclosure.
On the other hand, if have enough equity in the home, you may be able to avoid this process altogether by selling to an investor like Black Girls Buy Houses. For example, if you owe $150,000 on a $300,000 home, we would be able to offer you enough on an as-is cash sale to cover the outstanding amount you owe and more. This helps pay off the rest of the mortgage while giving you some money to start anew.
Contingent upon how much you owe, you may have sufficient funds to avoid foreclosure and make a down payment on a new, more manageable mortgage, or put a deposit and first month’s rent down on a new apartment, or maybe even to purchase a small condo or townhouse for cash. Either way, you’ll be far better off than if you permit the foreclosure to move to its inevitable conclusion of auction and eviction.
Some Thoughts to Consider
Through our time in the real estate investment business, we have seen all types of situations and can offer some advice:
- Don’t stay in a house that’s beyond your means.
- When confronting foreclosure, be suspicious of loan modification offers that sound too good to be true.
- Only take bankruptcy advice from an attorney.
- If you’re really underwater on a mortgage, consider working with someone like us so you can downsize and straighten out your finances.
- Interview the investor and get answers to all of your questions before accepting the offer.
Sometimes, life throws you a curveball and financial setbacks can get in the way of making regular mortgage payments and can lead to foreclosure. There are many reasons why you could need to sell your house quickly and get cash in hand.
We’re here to help! We provide a quick and simple sales process to every homeowner, providing solutions to homeownership problems. No matter the circumstances, we want to save you from foreclosure and give you the highest and best offer possible for your house so you can move on with your life.
We want to help. We can buy your house, stop foreclosure, and put money in your hands quickly. If you’re facing the threat of foreclosure, contact us immediately and we’ll get right to work saving you from the financial damage of foreclosure.